WASHINGTON -- A small bipartisan group of senators unveiled a deficit reduction plan yesterday designed to replace President Clinton's proposed energy tax with deep cuts in entitlement programs, but the proposal was immediately dismissed by Senate Democratic leaders as unpassable.

Treasury Secretary Lloyd Bentsen also promptly denounced the proposal as unworkable and warned that failure by Congress to adopt the President's budget would risk driving up interest rates and sending the economy back into recession.

The plan, which is designed to cut the deficit by $542 billion, was announced as the House Budget Committee voted largely along party lines to approve Clinton's $344 billion deficit reduction program, including the energy tax. The legislation now goes to the House floor for a vote next week.

The House measure contains Clinton's tax-exempt bond initiatives, a $525 billion increase in the $4.375 trillion national debt limit, and a first-time provision allowing the Government National Mortgage Association to offer Real Estate Mortgage Investment Conduits, among hundreds of other provisions.

The author of the Senate bipartisan plan, Oklahoma Democrat David Boren, is a key conservative who had sought changes in Clinton's defeated job stimulus bill and who holds a swing vote on the narrowly divided Senate Finance Committee. The committee is due to take up the President's budget program next month.

Boren said his proposal was designed to reverse the two-to-one ratio of taxes to spending cuts in the President's plan -- a criticism that has plagued the Clinton plan in both houses of Congress.

The bipartisan plan would substitute for the energy tax a cap on most entitlement spending except Social Security after fiscal 1995, and smaller inflationary increases in all federal retirement benefits, including Social Security, for individuals above the poverty line.

The plan, which Boren announced with Sen. Bennett Johnston, D-La., Sen. John Danforth, R-Mo., and Sen. William Cohei, R-Maine, otherwise retains most of the rest of Clinton's economic program. This includes his tax-exempt bond initiatives, which involve expanded use of bonds in enterprise zones and the permanent extension of mortgage revenue bonds and small-issue industrial development bonds.

Senate majority leader George Mitchell, D-Maine, said the Boren plan "has no chance of passing whatsoever" because it calls for deep spending cuts in Social Security and other programs cherished on Capitol Hill.

"The alternative plan will not be approved when members examine the details," Mitchell said. "The effect of the plan is to encourage a massive shift [of the burden of reducing the deficit] away from those at the high-income scale and put it on the backs of the elderly and working poor."

While the President's plan protects families with incomes of $30,000 or lower, he said, the Boren plan would force cuts on individuals subsisting on as little as $7,500 a year in Social Security benefits.

Finance Committee Chairman Daniel P. Moynihan, D-N.Y., agreed with Mitchell's assessment. "This proposal cannot pass the Finance Committee. There is not a single Democrat for it other than Boren," he said. For the plan to pass on the Senate floor, Moynihan said it would require 60 votes because of the changes it would make in Social Security benefits.

Shortly after the alternative plan was unveiled, Bentsen met with reporters in the Treasury Department and said, "it will never make it out of the Finance Committee."

Democrats hold a slim edge of 11-to-9 on the committee, and opponents of the President's budget have been pinning their hopes on a combination of Republican opposition and moderate Democrats.

But Bentsen predicted that supporters of the Boren-Danforth amendment will not get "more than a handful" of votes from Republicans because of the bill's tax increase on upper-income Social Security recipients, or from Democrats because of its "Social Security cuts."

Bentsen called the President's plan an "effective" and "fair" one that balances spending cuts and tax increases. He warned that if it is not adopted, a disappointed bond market could drive up interest rates and endanger the recovery.

"Jobs and prosperity are at stake because the higher interest rates that are sure to follow a failure to act will deal a body blow to the moderate recovery now under way," he said. The recent run-up in yields on the 30-year Treasury bond to over 7% was due in part to market uncertainty about prospects for the President's plan, he said.

Market skittishness was underscored by a report from Federal Home Loan Mortgage Corp. that the 30-year fixed mortgage rate for the week ending May 21 jumped to 7.52%, the highest in six weeks.

Besides not being feasible politically, the Boren-Danforth amendment is vague on important specifics such as how to cut $114 billion in entitlement spending, Bentsen said. He compared the proposal to the "black boxes" that former Budget Director Richard Darman used to send to Congress, leaving the hard choices up to the budget and tax-writing committees.

Bentsen also said the Boren-Danforth amendment would "very much endanger health-care reform" by trying to capture savings in Medicare and Medicaid that the administration intends to unveil as part of its own health-care plan.

The plan's proponents contended that it is more progressive than the President's program because it eliminates the energy tax, which hits low- and middle-income groups. More importantly, they said, unlike the Clinton plan it has the potential of attracting votes from both sides of the aisle.

Before the plan was announced, "the Democrat and Republican parties were headed in diametric opposition, in a take-no-prisoners mode," said Johnston. "This is a small group to begin with, but it is my prediction it will grow. The plan is more passable in the Senate and the House."

Danforth agreed that "meaningful deficit reduction cannot be done without Republicans" and must include both tax increases and entitlement cuts. Cohen said the group's efforts to come up with a bipartisan compromise have received support from Senate minority leader Robert Dole, R-Kan.

All of the senators warned that with Senate Republicans dead set on killing Clinton's budget package, it could meet the same fate as the stimulus bill. "We're trying to give the President a third option so he does not step on the third rail." said Cohen.

But House Budget Committee Chairman Martin Sabo, D-Minn., said that few Senate Republicans other than the sponsors support the plan. He said it has only the potential to "complicate life a little bit" on both sides of Congress.

Rep. Charles Stenholm, D-Tex., a conservative critic of the Clinton plan, said the Boren plan "is obviously very attractive to anyone from the oil patch" states that would be hard hit by the energy tax. He said there are efforts being made among Republicans and Democrats to get a vote on a similar proposal in the House.

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